Monday, November 3, 2014

The level of initial jobless claims has been doing a good job in this expansion of forecasting the general level and direction of both employment and the unemployment rate. While I haven't been able to do a formal regression analysis, the below scatter graph, showing the level of initial jobless claims on the bottom axis, and the monthly change in employment on the left axis, shows that for every 10,000 monthly average decline in jobless claims, there has been an increase of 10,000 to 12,000 jobs in the monthly jobs report:

Keeping in mind that in October we had the lowest initial jobless claims reports since 2000, the midpoint of the distribution for the October jobs number is about 280,000. With the exception of a few outliers, jobs reports have typically come within 80,000 of that midpoint, giving us a range of 200,000 at the low end and 360,000 at the high end.

Also, since initial claims tends to lead the trend in the unemployment rate by several months, I am expecting a further decline in that rate from 5.9% within the next two months.

And since the unemployment rate has been a good leading indicator for nominal wage growth, I am also expected nominal wages for nonsupervisory employees to improve from their present 2.2% YoY in the next several months as well.

Eyermann cautioned: "On the whole, I would describe the overall correlation as fairly weak - I wouldn't use the regression to attempt to predict either value."Erm, uh, well, since I already did that, I guess we'll just sit back and see what happens on Friday! FWIW, the regression does suggest a result centered on 261,000.